How to Make Your Money Last Through Generations?

Anyone can use strategies of the 1% to maintain wealth.


It goes without saying that people in the top echelons of society — you know, members of the 1% — have a lot of advantages when it comes to getting ahead in life.

They have all kinds of people helping them grow their money, manage their (many) homes — and figure out the best ways to keep their cash and other assets in the family for generations to come.

But just because you don't have a cadre of helpers doesn't mean you can't take a cue or two from the super-rich and successful — or the folks who help them stay that way.

Take, for example, people like Linda Davis Taylor, C.E.O. and chairman of Clifford Swan Investment Counsel in Pasadena, Calif., the nation's oldest investment advisory firm.

Even though she caters to the wealthy, Taylor firmly believes that anyone can use some of the business strategies employed by the 1% to come up with a blueprint for maintaining family wealth — regardless of how much money is at stake.

She even has a new book out on the topic: "The Business of Family: How to Stay Rich for Generations."

As she points out, billionaires as far back as the Rockefellers have crafted family business plans to keep the wealth going, and so can you.

So we talked to Taylor to find out how anyone can become the C.E.O. of their family and build a family business plan that can help set up their children — and their children's children's children—for future success.

LearnVest: You note that over 70% of wealth doesn't last beyond three generations. How do so many families let their money slip away?

Linda Davis Taylor: I like to use the analogy of a company. If a business doesn't have any profits, ultimately it can't stay afloat. The same is true with families.

No matter how much money one generation makes, if future generations spend more than they earn — and don't have a way to stay productive financially through their jobs or successful investing — that money is going to decline over time.

This seems obvious, but it comes up over and over again.

Things can happen. Inflation occurs. There are surprises in life. And if the next generation isn't taught money skills, they might look at a lump-sum inheritance and think: This is enough forever. I can spend what I want. I can live how I want. I'm set.

That money may last for a little while, but if it isn't replenished, it'll eventually run out. Plus, if people don't have that sense of how good it feels to be productive, they're not going to be happy and they won't thrive — despite how much money they have.


"Mentoring is what we can do best for the next generation."


LearnVest: You advocate taking the reins as the family's C.E.O., and mentoring younger family members like employees. How do you do this?

Linda Davis Taylor: Mentoring is what we can do best for the next generation.

Whether I'm leading a company or a family, I'm not going to have the job forever, so part of my responsibility is to make sure those who follow me have the skills and talents to be successful — so they're prepared to take the reins later.

This training doesn't happen by chance. Employees of a business don't have all the skills they need when they first show up on the job. Neither do our family members. We have to find the time and make the effort to teach them.

And it's important to start as early as you can. If the kids are young, talk about allowances and spending versus saving. As they get older discuss what it takes to run a household: How do you create a budget? How much is the electric bill? What does a gallon of gas cost? What does a car cost?

Eventually, get into how credit cards work, how to apply for an internship or job, the cost of college, what rent costs in different areas of the country, how to save for retirement and more.

The sustainability or wealth of a family is defined by much more than money. Wealth isn't just about assets. What most of us want to pass on are our values, because those principles are what keep people going through thick and thin.

LearnVest: You also believe families should create a mission statement. How does this work?

Linda Davis Taylor: Ask yourselves: Fundamentally, what does the family stand for? What is our purpose? What are the non-negotiables?

Your mission statement is a little bit of a slogan. When times are tough, it's what your family will fall back on.

You can even look to companies for ideas. For example, Disney's mission is to make people happy. For the non-profit TED, it's to spread ideas.

One family I know wanted to express the belief that everyone is expected to make the family a priority. The phrase they came up with? "No empty chairs." For them, it means: "We are loyal to each other. We support each other. When someone in the family needs help, we show up."

Just be sure to keep your mission statement to a phrase or a sentence, because we can't all remember long, drawn-out ones. Your family decisions — including your financial ones — will flow from that.


Talking to your kids about money is a good start.
LearnVest: What's the best way to keep money from coming between family members?

Linda Davis Taylor: It all starts with talking.

Families sometimes avoid difficult conversations because they're afraid that having them will cause problems. But not having the conversations causes more problems.

For example, talk about your will and inheritance. And don't just discuss money but also tangible objects, like jewelry, clothing, musical instruments, photos and art.

Also, if a family member has a physical or mental disability and is struggling more than others and needs extra resources, discuss that.

Ultimately, what is the family philosophy? Whatever it is, it's better to know in advance so there's no confusion, frustration or resentment down the line.

And remember: This doesn't mean having one conversation and then you're done. Revisit these conversations over time — especially after any big financial change.

LearnVest: Why are you so passionate about using business tactics when it comes to family estate planning?

Linda Davis Taylor: Family is really another business that we're running. And we can't just create the family, go to work, and assume everything is going to turn out fine unless we focus on teaching strategies.

Financial education falls squarely on the shoulders of family members, because there's really no other formal way in our society that those skills are taught. Schools aren't equipped to do it.

And it's kind of tough to go back and teach those things when your children are already out in the world. (businessinsider)
Learn more about "Members of the 1%"

The Weakening Ringgit and Its Moronic Justifications

Everyone has an opinion on the value of the ringgit. More often than not, that opinion would depend on one’s political leaning. Supporters of the existing regime would say the cheaper ringgit is good for the economy – it can enhance export competitiveness, promote tourism, and encourage more consumption and investment at home. On the other hand, those who are not happy with the government argue that the weakened ringgit will further erode confidence, cause inflation, encourage capital flight, and make imports, education and consumption abroad more expensive for Malaysians. 

Most of the arguments presented thus far are actually quite meaningless. They are full of political rhetoric but short of economic rationale and logic. 

If the ringgit’s depreciation has more benefits than drawbacks, why didn’t we do it sooner than later? After all, to weaken a currency is certainly easier to accomplish than to maintain or strengthen it, as demonstrated by China recently. 

I am no expert in the exchange rate determination and I have no idea about the “fair value” of the ringgit given our productivity trends, terms of trade, recent commodity prices, current account trends, money supply, interests rates and capital flows. However, what worries most Malaysians is not the ringgit’s weakness per se. It is the speed of depreciation and its likely impact on confidence and its consequent disruption of prices, trade and investments. 

We know demand and supply determine price, ceteris paribus. The same goes for the exchange rate – it is determined by the demand and supply of the ringgit. When confidence is undermined, there is now a greater speculative demand for foreign currencies at the expense of ringgit. When moneychangers run out of foreign currencies, what does that tell us? Surely our transaction and trade demand for foreign currencies cannot change significantly overnight. When there is heightened speculative demand for foreign currencies, particularly among Malaysians, the value of the ringgit will inevitably fall beyond its equilibrium value regardless of the long term fundamentals we often boast about. 

I think we should stop beating around the bush when it comes to the ringgit. We should stop putting up a false front as some cabinet ministers are in the habit of doing. They say the ringgit’s depreciation will make export competitive and encourage more tourists to Malaysia. But can we not see we now have to do more (i.e. export more or attract more tourists) just to earn the same amount of foreign exchange? Can we not see we have to use more foreign exchange to import the same amount of goods and services? 

Can we not see Singaporeans now buying land, houses and other assets in Johore at “half price”? 

Just like no commercial bank will be able to meet the withdrawal obligations of all their customers at one go, I believe managing the country’s currency is also the same. Besides economic fundamentals, it is managing confidence. 

Prime Minister Najib Razak said, “There is excessive political play and speculation that has resulted in uncertain sentiments towards the country’s governance.” I agree there was political play and speculation, but these are the consequences, not the causes. The causes are issues relating to the country’s governance. Resolve these issues and the confidence will return. Our currency skipped way before China decided to devalue its currency, which by the way, was done deliberately. 

If we have many uncertainties, unanswered questions, duplicities and conflicting signals going on for far too long, I think it is natural for anyone to take some steps to protect themselves. Is there any surprise if Malaysians with something to spare will take, run and hide away some of their net worth in foreign currencies? I know we talk about patriotism all the time; we even have patriotic number plates up for sale. But frankly, who is unequivocally patriotic today? The ruling elites? (FMT)

Malaysian Ringgit Sinks as China Ripples Spread

August 14, 2015

The Malaysian ringgit suffered its steepest one-day fall since the Asian financial crisis on Friday, as the effects of China’s new currency regime continued to ripple across the region.

The ringgit tumbled as much as 2.8 per cent in morning trading to 4.127 against the US dollar, its lowest level since 1998. Asian currencies have been hit this week by a state-engineered slide in the renminbi, with Malaysia the worst affected.

Currency watchers say Malaysia’s central bank has opted to step back from intervening in the market in response to the falling renminbi, unleashing pent-up downward pressure on the ringgit.

“Bank Negara Malaysia appears to have reduced its attempts to prevent ringgit weakness,” wrote analysts at HSBC. “The depreciation in the renminbi, and contagion to other Asian currencies, will likely encourage the BNM to allow greater flexibility in the ringgit exchange rate.”

The sharp fall in the ringgit came even as the People’s Bank of China set its daily currency fix slightly stronger compared with Thursday, helping to steady the renminbi after a tumultuous week.

The fixing rate, around which the Chinese currency can rise or fall by a maximum of 2 per cent a day against the dollar, was set at 6.3975, or 0.05 per cent higher than the previous day.

Nevertheless, most regional currencies dropped on Friday, with the South Korean won down 0.9 per cent against the US currency and the Singapore dollar shedding 0.6 per cent.

China’s move this week to weaken the renminbi has sent shockwaves through global markets, raising fears of a fresh round in the currency wars and heightening concerns about deflationary pressure in western economies.

On Tuesday, the PBoC used the daily fix to weaken the renminbi by 1.9 per cent, the most on record. Further declines followed on Wednesday and Thursday, prompting speculation Beijing was seeking a competitive devaluation to help spur the slowing Chinese economy.

However, on Thursday the central bank sought to calm nerves with a rare press conference at which officials downplayed the idea of a prolonged slide in the Chinese currency.

“It has been a dramatic week, with news from China driving global risk aversion,” said analysts at Nomura. “While a more sustained move toward a weaker renminbi seems quite probable, we are inclined to think the authorities will remain in control of the situation.”

Sentiment towards Malaysia has been damped by a range of factors including sharp falls in global energy prices since the end of June. Malaysia is a major exporter of both oil and natural gas, with crude accounting for almost a third of government revenue.

The country is also among the most vulnerable to rising US interest rates, with the level of foreign ownership of government debt among the highest in the emerging world.

Domestic politics have also played a role, after a probe into scandal-hit 1Malaysia Development Berhad, a state investment fund, engulfed the prime minister.

While figures released on Thursday showed Malaysia’s economy performed better than expected in the second quarter, growth was still the slowest in two years and many analysts predict further weakness ahead.

“The sharp fall in prices for Malaysia’s energy exports over the past year will put downward pressure on GDP growth, as lower prices hit government revenues and investment in the energy sector,” Capital Economics noted. (FT)

Malaysia’s Ringgit in a Tailspin

Currency falls more than 3% Friday to a fresh 17-year low

Aug. 14, 2015 2:27 a.m. ET

Malaysia’s ringgit suffered its largest one-day loss in almost two decades, with investors pulling cash out of stocks and bonds, as the nation’s list of challenges appears to be getting longer.

The ringgit shed more than 3% against the U.S. dollar Friday, leading the losses in global currency markets and falling to a fresh 17-year low.

Malaysia’s benchmark index was down 5.4% for the week, the region’s worst-performing stock market. Yields, which move inversely to prices, on five-year Malaysian government bonds rose 0.20 percentage point this week to their highest level since the global financial crisis.

Earlier this week, a number of currencies in the region tumbled after China’s surprise move to devalue its currency, which many saw as a threat to its export-dependent neighbors. But the ringgit has a set of issues all its own. (WSJ)

As RM Falls, Malaysian's Rich also Feel the Pitch like Mainland Chinese

As Yuan Falls, China's Rich Seek Safe Havens Offshore

For many in the ranks of China's wealthy, the shock devaluation in the yuan is a cause of regret - that they hadn't moved more money offshore sooner.

Now many are scrambling to shift cash out of the country, fearful that Tuesday's 2 percent devaluation is the start of a longer-term slide in the currency, despite the People's Bank of China (PBOC) saying there is no basis for more depreciation.

"With the devaluation, I've just lost several hundred thousand yuan," said businessmen Tang Wei, who is  moving assets out of China, partly to fund the living and schooling of his son in Canada next year.

"In my case, there's a real need for foreign currency, so it would be better to move money out sooner than later. China's economy doesn't look very good."

There are now around 4 million households in China that have private wealth of at least $1 million according to Boston Group Consulting, and private bankers say last month's stock market turmoil had already prompted them to make more investments overseas.

Those will have added to the capital outflows China has seen over the past year, which have been fueled in part by expectations the United States will hike interest rates by year-end.

Analysts at JPMorgan estimate around $235 billion of "hot money" left the country between the third quarter of 2014 and the end of the second quarter this year.

But if expectations build that more depreciation is on the cards, the central bank will face a dilemma of whether to let the currency stay weak to help exporters or support it to ensure the flow of money going offshore doesn't turn into a flood.

"We believe a key concern for the PBOC is that an outsized exchange rate devaluation could trigger capital flight," economists at Credit Suisse said in a research note on Tuesday.

That concern was reflected in a hastily arranged press conference on Wednesday, when the central bank tried to soothe market concerns by stressing Tuesday's move was a one-off.

HEADING FOR THE EXITS

Despite the calming words, money managers say many of China's wealthy are unlikely to let their cash ride on the ability of authorities to put a floor under the yuan.

"At this point the frenzy will be higher after the devaluation because they would start looking into harder assets on expectations of more devaluation," said Kunal Ghosh, Singapore-based portfolio manager at Allianz Global Investors, who helps manage $1.8 billion in emerging market assets.

Tan Jialong, chief executive of Tan Private Wealth Management Office in Shanghai, said that since May there has been an increase in queries from his clients in China about overseas asset allocation.

"Many clients had question marks about China's economy," Tan said. "I advised them at that time to increase their overseas exposure."

He helps them move money through official offshore investment channels such as the qualified domestic institutional investor program and cross-border investment products.

Capital controls restrict Chinese residents from taking more than $50,000 out of the country each year.

However, many find ways to circumvent this, reflected in the fact mainland Chinese citizens are some of the biggest foreign buyers of property in markets like Australia, the United States and Canada.

"Residential property is always a popular choice if you are trying to move sums of money less than $5 million," said Oliver Barron, a policy research analyst with China-focused investment bank NSBO.

"If you need to get more out, buying companies looks like the best way," he added.

For those looking for more liquid assets, ones denominated in U.S. dollars are likely to be their first choice.

"They would look at wherever they conceive they can preserve their wealth without any value erosion. At this point the U.S. dollar is looking like the safest haven," said Allianz's Ghosh. - Reuters

5 Ways China's Devaluation Could Shake the Markets

Markets are buzzing about the Chinese government's surprise decision to devalue their currency, known as the yuan, leading to a 2 percent drop in the yuan's value in Tuesday trading, the largest one-day decline ever.

The question is what does in mean?

The markets-all of the markets-supplied some preliminary answers almost immediately.

1. It gives the Federal Reserve another reason to delay raising interest rates.

The yield on benchmark 10-year Treasuries fell more than 5 percent in U.S. trading today, moving down to 2.12 percent in early afternoon. So the most immediate practical impact of China's move in the U.S. may be that mortgage rates stay lower for longer.

The idea is that the Federal Reserve may stand pat because weaker growth in one of the U.S. major trading partners might help convince the Fed that conditions are still soft enough to keep the Fed funds rate at the near-zero level it has occupied since 2008. Whether that's enough to offset strengthening domestic labor markets, which are expected to prompt the Fed to raise rates in either September or December, remains to be seen.


2. It's bad for commodities-and good for commodity buyers.


Immediately, the move means China will pay for oil, copper, coal and other commodities with cheaper yuan. It may also imply that authorities are worried about the Chinese economy weakening more than the already disclosed dip in gross domestic product growth to an annual 7 percent clip in the first half of the year, leading to lower demand for commodities.

The second part of that equation is one reason why oil dropped 4 percent on the news. Copper dropped 8 percent. That's great if you're filling your tank in the U.S.-or making pennies. (Chinese airline stocks got hit hard, as investors factored in the effect of paying more yuan for fuel but discounted the effect of cheaper crude). But less-valuable Chinese currency is not so good for exporters who want to sell manufactured goods that include copper, for example, or that are made in factories powered by Australian coal.

The impact on their costs will cut into any benefit they get from selling their goods more cheaply to dollar-using buyers.

3. The falling yuan may force other countries to devalue their currencies.

Currencies of Australia, Malaysia and South Korea fell in tandem after China's move. But an analysis by Morgan Stanley in March predicted that a 15 percent drop in the yuan, much larger than today's move, would cause a 5 percent to 7 percent drop in other Asian currencies.

4. China's overall impact on U.S. growth will be small.

The move today isn't big enough to offset the yuan's appreciation over the last year, so it's not likely that it will immediately affect China's growth rate by itself, Goldman Sachs analyst MK Tang said in a note to clients. Because the People's Bank of China's policy shift changes the government's formula for valuing the currency to give greater weight to market prices in a system that is a hybrid of state and market control, it's too soon to tell whether the 2 percent drop will be all that's in the pipeline, Tang explained. But even a 5 percent drop wouldn't meaningfully affect China's exports, Morgan Stanley's Helen Qiao said in a March 6 report.

If China's growth did slow more sharply, the impact on the U.S. would be minor. Goldman Sachs analyst David Kostin says a 1 percentage point drop in China's annual economic growth would shave 0.06 percent off U.S. gross domestic product. That impact is already showing up in second-quarter reports by companies such as Caterpillar (NYSE: CAT), 3M (NYSE: MMM) and United Technologies (NYSE: UTX), suggesting it would be concentrated among industrial companies.

That suggests the 2 percent decline in U.S. stock market averages today is overdone.

5. China's real goal may be prestige-and some longer-term stability.

China has been making an all-out push to make the yuan the fifth currency recognized by the International Monetary Fund as an international reserve currency, a designation that could be formalized as soon as next month.

To win so-called Special Drawing Rights status, China has to demonstrate that its currency is "freely usable," a conclusion the IMF has refused to draw as recently as 2010. The push for special drawing rights is pressing China to reduce capital controls in general and may, in particular, be driving the move toward a more market-based way of valuing the yuan, according to a Bloomberg analysis in March.

The results could include convincing more central banks across the world to hold reserves in yuan, stabilizing its value, or to be able to buy commodities and other goods priced in yuan, according to several Asia-based experts cited in Bloomberg's piece. Special drawing rights might also cut borrowing costs for Chinese exporters.

Looked at that way, China's move may be trading some short-term pain for the promise of longer-term gain.

-By Tim Mullaney, special to CNBC.com

Asset Allocation - Striking the Right Balance

Harry Markowitz, Nobel laureate in economics and a pioneer in investment theory, suggested that a fundamental responsibility of any investor is to manage the risk of his portfolio.

The risk to which he was referring is volatility -- the ups and downs of stock prices during the year and from year to year. Investors who ignore risk in pursuit of returns expose themselves to intolerable portfolio declines, prompting them to abandon their plan and thereby converting temporary losses into permanent ones. Conversely, those who choose to minimize or avoid volatility must be willing to accept returns that may prove insufficient to fund future goals.

The world's capital markets are comprised of different asset classes, each with its own risk and return characteristics. The three major categories are stocks, bonds and cash. A portfolio's distribution across asset classes is referred to as its asset allocation.

Sophisticated investors have known for decades that asset allocation is the most significant determinant of a portfolio's performance. Landmark studies published in the 1980s and 1990s analyzed the returns of large institutional plans and confirmed the important role of asset allocation, estimating that it explains more than 90 percent of a portfolio's returns and volatility over time.

The message for all investors is that asset allocation is far and away the most important part of designing a successful portfolio.

In general, stocks provide the growth engine.

The higher the allocation of stocks, the higher the expected investment returns, and along with it, the higher the volatility. Bonds offer stability but not much long-term growth potential, especially after accounting for inflation.

The appropriate mix of stocks and bonds will strike a comfortable balance between growth and stability and reflect the individual investor's financial goals and ability to handle risk. 

Investing is often framed as a choice between eating well as a result of high stock-market returns and sleeping well from the stability that bonds provide.

The implication is that investors must choose one or the other. Markowitz showed us that a sensible asset allocation allows us to do both.

Source - lowellsum.com